Despite 220,000 claims filed relative to COVID-19, “we have not scratched the surface of the potential” for claims, Matthew Monson, The Monson Law Firm, told attendees at the second session of the Louisiana Claims Association’s 2020 Virtual Conference held Nov. 18-19.
Of those claims filed, Monson said 170,000 were denied, and more than 1,300 lawsuits have been filed. “Obviously, if 170,000 lawsuits were filed, it would swamp the courts,” Monson said in his session titled COVID Coverage Conundrum.
The National Law Review reported at the end of October that 75 percent of the COVID-19 business interruption cases have ended in dismissals of the policyholders’ claims. The NLR also reported that lawsuits have been filed against every major insurer operating in the United States.
Monson pointed out that insurance companies did not get premium to cover losses from a pandemic.
Referring to data from a National Association of Insurance Commissioners data call on COVID-19 business interruption claims information, Monson said there are 34,000-plus open BI claims, and 3,000 of the 201,000 reported were closed with payment, leaving 164,000 closed without payment.
The NAIC reported on the data call in October. Only those claims related to COVID-19 with a business interruption component were requested to be reported, according to the NAIC.
Of the claims reported, 42.8 percent were on BOP policies, and the remaining 57.13 percent were other than BOP. Of the 3,000 claims closed with payment, 2.3 percent were BOP claims and 97.7 percent were other than BOP claims.
Incurred losses from business interruption claims amounted to $1.275 billion, according to NAIC data, and paid losses amounted to $296 million. The average paid loss was $98,614, and the average claim amount (paid and reserved) was $34,364.
Of the losses paid, 0.21 percent were on BOP policies, while 99.79 percent were other than BOP, the NAIC reported.
“Insurers are getting a huge number of claims now,” Monson said, which “could bring the industry to its knees if (business interruption) coverage is found.”
According to the NAIC, its analysis showed that 83 percent of policies have exclusions for virus, bacteria and pandemics and 98 percent require a physical loss for a valid claim.
Number and nature of COVID lawsuits
Monson cited statistics from the University of Pennsylvania Carey Law School’s Covid Coverage Litigation Tracker and told listeners about the number and nature of the COVID-19 lawsuits in Louisiana.
According to the lawsuit tracker, as of Dec. 10, there were 73 lawsuits filed in Louisiana relative to COVID-19. Twenty of those lawsuits were insurance related; 15 dealt with civil rights; 10 with real property; six contract disputes; five health/medical; four each for education, labor and consumer; two were against China.
Monson believes that COVID-19 lawsuits and claims are understated and that the number of lawsuits dealing with insurance coverage will “jump up.”
The types of coverage being sought in the COVID-19 insurance claims, according to the litigation tracker, are: business interruption (1,289 claims), extra expense (1,159 claims), civil authority (1,127), other (98), ingress/egress (64), sue and labor (62), contamination (50), cancellation (47), premium relief (14) and liability (3).
So far, according to Monson, many attempts at class action have not been successful. At the time he was speaking in November, there had been 77 attempts in state courts only, 180 federal only, and 123 in federal and state courts. While policies are similar, state laws differ. “They (states) have their own nuances,” Monson said, so he believes business interruption lawsuits are not candidates for class action.
Hundreds of lawsuits include bad faith allegations (455), while many more do not (973), according to Monson. He explained the two Louisiana bad faith statutes and pointed out that different states have different laws.
As of Dec. 10, the insurance groups most frequently sued include Hartford Financial Services (217 lawsuits), Cincinnati Financial Corp. (146 lawsuits), Zurich Insurance Group (83), Underwriters at Lloyd’s (72), Travelers Companies (66), Erie Insurance Exchange (56), Chubb Ltd. (55), Nationwide Mutual Insurance Company (53), Society Insurance, a Mutual Company (49), Liberty Mutual Holding Company Inc. (49), CNA Financial Corp. (41), Hanover Insurance Group Inc. (31), Tokio Marine Holdings Inc. (29), American International Group Inc. (28) and Arch Capital Group Ltd. (28).
Who is filing the lawsuits?
More lawsuits came from food services and drinking places (526 lawsuits) than any other business class, followed by ambulatory health care services (185 lawsuits); personal and laundry services (84); accommodation (70); amusement, gambling and recreation industries (66); professional, scientific and technical services (58); clothing and clothing accessory stores (52); private households (49); real estate (45), and performing arts, spectator sports and related industries (31), according to the litigation tracker.
What business interruption covers
As Monson described it, business interruption coverage protects businesses against losses sustained during periods of suspended operation; that is, the insurer pays for loss of revenue. The idea is, he said, that the insurer pays when physical loss by a covered peril is sustained.
Not all businesses carry a stand-alone business interruption policy. Monson said, BOPs typically provide some business interruption coverage, and property policies may cover business interruption when there is a direct physical loss due to a covered peril. “That is the language people are fighting over,” he said.
Monson reviewed some typical policy language and opined that the “language seems simple.” Relative to extra expense policy language, Monson said extra expense is “what you would not incur if there had been no direct physical loss.”
In the arguments over whether or not business interruption is covered, insurance companies focus on the word “damage” that alters the physical integrity of the property. “Insurance companies jump over the word ‘loss’ and go directly to the ‘damage,’” Monson said.
A couple of rulings
Judge Joyce Draganchuk of Michigan’s 30th Circuit Court, ruling from the bench on July 1, handed insurers a victory in what is possibly the nation’s first final ruling on whether a property insurer is liable for financial damages caused by a COVID-19 closure order. In the case, Gavrilides Management Company et al. v. Michigan Insurance Company, she ruled that some tangible alteration to a property is required to trigger coverage, and that a virus exclusion in the property policy would have barred coverage even if the claimants had alleged the virus did cause physical damage.
Many lawyers watched to see what she would say, Monson said, adding that Michigan’s 30th Circuit Court is not precedent setting in Louisiana.
In another case, Social Life Magazine v. Sentinel Insurance Co., U.S. District Judge Valerie Caproni for the Southern District of New York denied a preliminary injunction requested by the magazine publisher to force its insurers to pay for financial losses caused by a COVID-19 closure order.
According to Monson, Caproni said, “It damages lungs. It doesn’t damage printing presses.”
Policyholders focus on loss
Policyholders’ lawyers talk about the property being unusable and focus on the loss. They say physical loss occurs when the property is uninhabitable, Monson said, and closure orders make the property unusable.
The clock starts running on the covered period 72 hours after the action of the civil authority and ends the earlier of when the property should have been replaced or the business resumes at another location. “The idea is to compensate business losses sustained during the time it takes to get the business back up and running – not longer,” Monson said.
ISO files forms excluding viruses
On July 6, 2006, an ISO Circular announced the submission of forms filings to address exclusion of loss due to disease-causing agents such as viruses and bacteria, Monson explained. Commercial property policies already contained a pollution exclusion. Although the pollution exclusion addresses contamination broadly, viral and bacterial contamination needed to be addressed separately, he said.
According to Monson, ISO said in the Circular that an allegation of property damage may be a point of disagreement in a particular case.
“Of course it’s a point of disagreement in every case,” Monson said.
He is puzzled as to why some insurance companies failed to use the exclusion and mentioned that a special exclusion was filed for Louisiana.
“All insurance companies needed to do was add this exclusion and most cases would go away,” Monson said.
Notably, under the Current Concerns section of ISO’s 2006 announcement, the Circular says, “While property policies have not been a source of recovery for losses involving contamination by disease causing agents, the specter of pandemic or hitherto unorthodox transmission of infectious material raises the concern that insurers employing such policies may face claims in which there are efforts to expand coverage and to create sources of recovery for such losses, contrary to policy intent.”
Cajun Conti et al. v Certain Underwriters at Lloyd’s et al.
Monson speculates that a ruling from “some state elected judge will open the flood gates.” He noted that the first lawsuit for business interruption coverage was filed March 16 in Orleans Civil District Court and that the case will likely be the first business interruption lawsuit to be heard on its merits. Currently, the lawsuit is scheduled to begin Dec. 14. The case was postponed from its originally scheduled start date of Nov. 16.
Cajun Conti, which does business as Oceana Grill, filed the lawsuit against Lloyd’s underwriters shortly after New Orleans Mayor LaToya Cantrell issued an emergency declaration.
According to Law360, Oceana Grill’s attorney, John Houghtaling II, Gauthier Murphy and Houghtaling LLC, told Law360 that he filed the lawsuit seeking a declaration that there was coverage for loss of income due to government ordered shutdown.
In November, Judge Paulette Irons of Orleans Civil District Court denied certain Underwriters at Lloyd’s bid to subpoena one of Oceana Grill’s attorneys, Roderick “Rico” Alvendia. The Lloyd’s motion alleges that Alvendia influenced the language used in the COVID-19 shutdown order issued by Cantrell on March 16, and that Oceana Grill then relied on that language to establish physical damage.
To support their request, according to court documents, the Underwriters at Lloyd’s included text messages from Alvendia to Cantrell’s executive counsel suggesting language to include in the order.
The language suggested in the text message said, “Additionally the order is given because of the propensity of the virus to spread person to person and also because the virus physically is causing property loss and damage due to its propensity to attach to surfaces for prolonged periods.”
Counsel for the Oceana Grill presented evidence showing Alvendia was not influencing Cantrell’s order, but was blowing the whistle on plans by insurers to deny coverage, Law360 said that Houghtaling said.
In opposing the motion, Oceana Grill cited a March 11 memo released by Zelle LLP, a law firm with offices in Dallas and other cities that does defense work for insurers, including Underwriters at Lloyd’s. Houghtaling told Law360 that the memo advised insurers that if the government shutdown orders did not specify that COVID-19 caused physical damage or loss by adhering to surfaces, they could use that omission as a way to deny coverage.
Houghtaling told Law360 that the Lloyd’s underwriters withdrew their allegation that Alvendia acted improperly, before Irons denied their motion for a subpoena and struck their allegations from the court record.
Two weeks earlier, Irons had denied the Lloyd’s underwriters motion for summary judgment.
In the LCA workshop, Monson indicated he believes they (the plaintiffs) are manipulating the facts and concluded his remarks by quoting Winston Churchill: “This is not the end nor the beginning, but may be the beginning of the end.”